FTX, one of the largest cryptocurrency exchanges in the world, recently went bankrupt.
Several billion dollars in value evaporated in minutes when this unhealthy institution collapsed.
It created a true “blood in the streets” moment, weighing heavily on the price of Bitcoin.
Bitcoiner Matt Odell summed it up best:
“It’s a story of fiat inducements, shitcoin games, regulatory corruption and counterparty risk that ended in inevitable disaster. It will serve as a costly reminder that bitcoin held in self-custody is unique in its zero counterparty risk. You can easily and cheaply store it yourself and send it around the world without trusting anyone or asking permission. Learn how to hold bitcoin yourself and how to use it sovereignly.
It should be pointed out that FTX, and other similar companies, are not at all the same thing as Bitcoin – an emerging global currency that no one can inflate or control and which is accessible to everyone.
For example, suppose an unscrupulous gold storage company has become insolvent. This would not mean that the gold is defective.
The collapse of FTX will undoubtedly be a drag on the price of Bitcoin in the short term. But on the bright side, it will help cleanse the industry of bad actors and offer crucial lessons.
I don’t expect the collapse of FTX to have a lasting negative effect on Bitcoin.
Bitcoin has been through several more explosive incidents in the past and emerged stronger than ever (see the 2014 Mt. Gox bankruptcy, for example).
However, I expect Bitcoin to remain volatile, as it has always been since its inception.
Something is wrong with the lack of value to the importance of global money without volatility.
For example, Bitcoin has fallen from zero value in 2009 to $69,000 in November 2021 to around $17,000 today, down more than 75% from its previous peak.
It is essential to keep in mind that recent volatility is normal.
It is common for Bitcoin to have large corrections of 50% or more, which has happened eight times. Additionally, there have been three occasions where Bitcoin has declined by 80% or more.
If you zoom out and look at the big picture, Bitcoin’s volatility has mostly been on the upside over the long term.
Say you go back four years ago and tell someone that Bitcoin “crashed” to $16,000. It would have been so amazing that you would probably be laughed out of the room.
Bitcoin continues to rebound stronger than ever due to the fundamentals underlying this megatrend. This is a new and superior form of money in the early stages of adoption.
The monetization of a new global currency is unlike anything anyone has ever seen. It doesn’t happen overnight, and it’s an inherently volatile process.
As adoption grows and Bitcoin becomes more established as a currency, volatility should subside, but likely at a much higher price. That’s why you want to buy Bitcoin – and the best Bitcoin mining stocks (more on that below) – before the rest of the world discovers its superior monetary properties, namely its complete inflation resistance of its supply.
It will be a wild ride – like a violent roller coaster – but I think it will reward patient investors.
Bitcoin’s volatility is the price we have to pay to earn outsized gains as it undergoes the monetization process.
Here is the bottom line.
Investors will face volatility in Bitcoin for the foreseeable future.
Instead of looking anxiously at price charts daily, I suggest focusing on the big picture and the fundamentals of the underlying trend.
The key is to understand the disruption before most, invest early, and have positions small enough to ride the megatrend without worrying about volatility crushing you at the worst possible time.
Whenever you see volatility in the price of Bitcoin, ask yourself two things:
1) Does Bitcoin still have superior monetary properties (total inflation resistance of its supply)?
2) Is Bitcoin still unstoppable?
If the answer to both of these questions is “Yes”, I wouldn’t be too worried.
With that in mind, let’s take a close look at three crucial strategies that can help tame Bitcoin’s wild volatility.
Strategy #1: Average Dollar Cost (DCA)
The best way to buy Bitcoin is to avoid buying it in one big purchase.
Instead, given the volatility of Bitcoin, a long-term Dollar Cost Average (DCA) approach is optimal.
For example, suppose you want to invest $10,000 in Bitcoin. Instead of buying $10,000 all at once, buy about $192 every week for a year.
DCA greatly reduces the risk of buying too much at the top of a cycle and not buying at the bottom.
This is how DCA can turn Bitcoin’s volatility in your favor.
Swan Bitcoin offers a convenient platform that automates DCA purchases for you, including withdrawals to your own wallet, which is essential for eliminating counterparty risk. I have personally used it and found their service helpful.
More details can be found at the link above, including a useful calculator that displays a DCA strategy’s performance in the past and a $10 free Bitcoin bonus for signing up with this link.
Strategy #2: Don’t let anyone else hold your Bitcoin
Bitcoin is a digital bearer instrument. A bearer security gives whoever owns it ownership of it.
If you hold your Bitcoin on Coinbase or another platform, you don’t really own your Bitcoin and are taking on significant counterparty risk. Instead, you own a Bitcoin IOU, which is something quite different, as FTX customers are currently finding out.
It’s much safer to keep your Bitcoin off the exchange’s website in your own self-service wallet, where you control the private keys.
For starters, start with the Muun Wallet or the Blockstream Green Wallet for your phone. Both are excellent choices and are among the easiest to use. BlueWallet is a good choice for intermediate users on mobile phones. Finally, Electrum and Sparrow Wallet are great options for laptops and desktop computers, which are often more secure than a mobile phone.
Whichever self-service wallet you use, ALWAYS make sure you have backed up your wallet correctly. Each wallet is different and will give you instructions for making the backup. This way you won’t lose your funds if you lose your phone or laptop.
It is crucial to complete this step when setting up your self-service wallet, as it is the ONLY way to recover your funds if something happens to your device. Bitcoin has no customer service.
Strategy #3: Have a four-year time horizon
Plan to hold Bitcoin for at least four years, through a halving cycle.
According to its fixed protocol, we know precisely how the supply of Bitcoin will increase in the future. A key feature is that the new supply is halved every four years, a process known as halving.
Rarely has there been a period when the price of Bitcoin was lower than it was four years ago. When this happened, it was fantastic buying opportunities. But, of course, past performance does not indicate future results.
The 200-week moving average (200 WMA) is a useful metric because it contains nearly four years of price data, roughly the length of a halving cycle. Historically, the 200 WMA has been a good indication of the Bitcoin price floor.
As we can see in the chart above, now is one of those rare times when Bitcoin price is trading below its 200 WMA.
However, the opportunity may soon be gone.
Historically, Bitcoin’s biggest upside moves happen very quickly…especially in the midst of a financial crisis.
With several crises unfolding right now, the next big move could be imminent.
That’s why I just published an urgent PDF report, it’s called:
The Most Dangerous Economic Crisis in 100 Years…The Top 3 Strategies You Need Right Now
It details how this could all unfold soon…and what you can do about it. Click here to download the PDF now.